The Income Tax Appellate Tribunal, Mumbai, has delivered a significant ruling clarifying the limits of revenue authorities in making additions under Section 69 of the Income-tax Act. The judgment reinforces that unexplained investment assessments cannot rest on speculative inferences drawn from third-party statements or digital data seized during searches, absent independent corroboration and procedural fairness.
Background & Facts
The Dispute
The appellant, Abdul Razzaq Nadvi, purchased Shop No. 1403 in the Fuego project developed by M/s Hilton Infrastructure, a company within the Rubberwala Housing Infrastructure Limited (RHIL) group. The transaction involved a total consideration of Rs. 64,00,000 paid in cash, which the Assessing Officer (AO) treated as unexplained investment under Section 69 of the Income-tax Act, 1961. The appellant denied making any cash payment and submitted bank statements and a sale agreement as proof of legitimate payment channels.
Key Facts
- The appellant purchased the shop in the financial year 2015-16, with the transaction completed by 31.03.2016.
- The assessment was conducted under Section 153C of the Act, triggered by a search and seizure operation conducted on 17.03.2021 on premises of RHIL, its promoter Shri Tabrez Shaikh, and its key employee Shri Imran Ansari.
- During the search, a 16GB pen drive was seized from the residence of Shri Imran Ansari, containing an Excel file titled "consolidated 1 2 3 balance".
- The Excel file listed 27 shops purchased by individuals, including the appellant, with cash payment entries. The appellant’s mobile number (9892196071) was recorded against the entries for these shops.
- Shri Imran Ansari, in his statement recorded under Section 132(4) on 17.03.2021, confirmed that he maintained the Excel file and that cash payments were collected by Shri Abrar Ahmed and recorded by him.
- Shri Tabrez Shaikh, in a post-search statement dated 19.08.2021, corroborated the authenticity of the Excel data.
- The appellant was not provided any opportunity to cross-examine Shri Imran Ansari or Shri Tabrez Shaikh, despite a formal request.
- No diary, receipt, or other documentary evidence linking the appellant to the cash payment was recovered from his premises during the search.
Procedural History
- 17.03.2021: Search conducted under Section 132 on RHIL group entities and key personnel.
- 30.03.2024: Assessment order issued under Section 153C by ACIT, Central Circle 4(2), Mumbai, adding Rs. 64,00,000 as unexplained investment under Section 69.
- 17.10.2025: CIT(A)-52, Mumbai, upheld the addition.
- 07.05.2026: Hearing before ITAT Mumbai "A" Bench.
- 12.05.2026: Judgment pronounced by ITAT Mumbai.
Relief Sought
The appellant sought deletion of the addition of Rs. 64,00,000 under Section 69, arguing that the assessment was based solely on uncorroborated third-party statements and lacked independent evidence. He also sought restoration of his original return of income of Rs. 6,94,830.
The Legal Issue
The central question was whether an addition under Section 69 of the Income-tax Act can be sustained solely on the basis of third-party statements and uncorroborated digital entries from a search, when the assessee denies the allegation and no independent evidence is produced, and whether failure to provide an opportunity for cross-examination vitiates the assessment.
Arguments Presented
For the Appellant
The appellant’s counsel contended that the addition under Section 69 was legally unsustainable because:
- The only evidence relied upon was the statement of Shri Imran Ansari and data from a pen drive seized from a third party.
- No corroborative evidence such as cash receipts, diary entries, or bank withdrawals by the appellant was found during the search of his premises.
- The appellant was denied the right to cross-examine the third-party witnesses, violating the principles of natural justice as established in Andaman Timber Industries v. Commissioner of Central Excise.
- Multiple coordinate benches of the ITAT Mumbai had consistently held that such additions cannot be sustained under identical factual circumstances.
For the Respondent
The Revenue argued that:
- The Excel file recovered from the premises of Shri Imran Ansari was a reliable business record maintained in the ordinary course of RHIL’s operations.
- The corroborative statement of Shri Tabrez Shaikh validated the authenticity of the data.
- The presence of the appellant’s mobile number in the Excel sheet created a strong inference of his involvement in the cash transaction.
- The AO was entitled to rely on materials seized during a search under Section 153C, and cross-examination was not mandatory in such proceedings.
The Court's Analysis
The Tribunal undertook a comprehensive review of the judicial precedents from coordinate benches of the ITAT Mumbai, which had dealt with identical facts arising from the RHIL group search. The Court emphasized that while Section 153C permits assessment based on materials seized during a search, it does not dispense with the requirement of evidentiary reliability or procedural fairness.
"No independent corroborative material was brought on record as well as no opportunity of cross examination given to the assessee on the statements relied upon."
The Tribunal noted that the Excel file, though detailed, was maintained by a third party and was not verified against the appellant’s own records. The mere presence of the appellant’s mobile number in the file was insufficient to establish payment, especially in the absence of any physical evidence recovered from his possession.
The Court placed decisive reliance on the Supreme Court’s ruling in Andaman Timber Industries v. Commissioner of Central Excise, which held that failure to provide an opportunity for cross-examination of witnesses whose statements are relied upon constitutes a violation of natural justice and renders the order void. The Tribunal held that this principle applies with equal force in income tax proceedings, particularly where the assessment hinges on adverse third-party testimony.
The Tribunal further observed that the Revenue’s reliance on the Excel file as a "business record" was misplaced, as the file was not authenticated by the appellant, nor was it shown to be part of any official accounting system of RHIL. The absence of any corroborating documents from the appellant’s side, coupled with the denial of cross-examination, rendered the evidence legally inadequate.
The Verdict
The appeal of the assessee was allowed. The Tribunal set aside the addition of Rs. 64,00,000 under Section 69 of the Income-tax Act, restored the original return of income of Rs. 6,94,830, and directed the Assessing Officer to recalculate the tax liability accordingly. The Tribunal also directed that the order be implemented within four weeks from the date of pronouncement.
What This Means For Similar Cases
Third-Party Data Alone Is Insufficient for Section 69 Additions
- Practitioners must challenge additions based solely on Excel sheets or digital records seized from third parties, especially when the assessee denies the transaction.
- The burden shifts to the Revenue to produce independent evidence linking the assessee to the alleged cash payment.
Cross-Examination Is a Non-Negotiable Right
- Any reliance on third-party statements under Section 153C must be accompanied by an opportunity for cross-examination.
- Failure to grant this opportunity renders the assessment void under the principle of natural justice, as affirmed by the Supreme Court.
Precedent-Based Defense Is Critical
- Taxpayers facing similar assessments arising from the RHIL group search should cite the 14 coordinate ITAT Mumbai judgments referenced in this order.
- The consistent judicial trend confirms that the Revenue cannot use bulk search data to make blanket additions without individualized proof.
